On top of record-high home prices, a high interest rate environment has made it too expensive for many Americans to purchase a home. According to the Federal Reserve, the median sales price in the U.S. is $412,300, roughly 30% higher than in 2020. Meanwhile, 30-year fixed-rate mortgage rates have remained elevated for the past couple of years.

However, the mortgage market has seen positive signs recently, with average mortgage rates hitting a four-month low in July. According to Freddie Mac, average rates on 30-year fixed-rate mortgages have dropped below 7% and currently stand at 6.73%.

If buying a home or refinancing your mortgage is part of your near-term plans, monitoring mortgage rate trends could inform your decision. We asked several mortgage rate experts for their projections on how mortgage rates will trend in August and beyond as the rate climate evolves.

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Will mortgage rates continue to drop in August?

The experts we spoke to were split on the future of mortgage interest rates this month. Here’s what they predicted:

Mortgage rates could continue to drop in August

All eyes are on the Federal Reserve, watching when the central bank may lower interest rates. Several experts said the anticipated rates are already factored into today’s interest rates. However, other economic factors like inflation and the unemployment rate can also come into play.

Daniel McKeever, an assistant professor at the School of Management at Binghamton University, State University of New York, anticipates a modest rate drop. “My best guess is another slight decrease (in mortgage rates),” he says. “The labor market is softening a bit, and inflation continues to ease.”

McKeever points out that inflation is trending toward the Fed’s stated target rate of 2%, which could prompt the central bank to drop the federal funds rate in September. “Mortgage rates track closely with the Fed funds rate and can sometimes serve as a leading, rather than lagging, indicator if creditors are anticipating a lower rate environment in the near future.”

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Mortgage rates won’t drop in August

Other experts we spoke with agree that any Federal Reserve rate cuts are accounted for in the current mortgage rate, but project rates to hold steady for August.

“The markets are already expecting the Federal Reserve to reduce the rates in September with a likely reduction of 0.25%,” says Jeremy Schachter, a branch manager at Fairway Independent Mortgage Corporation. “This is already being anticipated, and mortgage rates are already counting on that. So a further reduction in rates for August is not expected.”

Ralph DiBugnara, president of Home Qualified, points out that mortgage rates recently hit four-month lows in July, largely due to widespread speculation about a potential Fed rate cut in September. He states, “Those bets have built most of that anticipated cut into the rates already, so I anticipate August rates staying steady at July’s averages until we get a definitive decision from the Fed Chairman.”

Factors that could influence mortgage rates

Several factors contribute to market mortgage rates that bear close watching if you plan on financing a new home or refinancing your current one. Here are a few of the most common drivers that affect mortgage rates.

• The Federal Reserve: Changes in the Fed rate often lead to adjustments in the prime rate for mortgages. Consequently, mortgage lenders must change the rates accordingly.
• Inflation: When inflation is high, the value of the dollar declines. To compensate for the change, lenders charge higher interest rates on their mortgages. Conversely, lower inflation can lead to reduced mortgage rates.
• Bond market: Mortgage rates are also influenced by mortgage-backed securities, which are collections of mortgages sold on the bond market. When demand for these bonds is high, it often results in lower mortgage rates and vice-versa.
• Overall state of the economy: When unemployment is low, consumer spending is up, and other economic indicators are strong, mortgage rates often rise. The opposite is also true, with a weaker economy leading to lower rates.

Inflation is one of the primary factors contributing to the current mortgage rate environment. The Federal Reserve followed an aggressive rate hike schedule through much of 2022 and 2023 to curb inflation, and mortgage rates followed suit.

“Inflation has been the greatest adversary to lowering interest rates over the last two years,” says DiBugnara. “A drop in the inflation rate, as well as lower consumer spending and higher unemployment, are what’s most likely to have a positive impact on rates being reduced.”

See how far mortgage interest rates have already been reduced here.

The bottom line

Inflation is beginning to cool, but it could take time to reach the Fed’s 2% inflation rate target. While the central bank is projected to lower rates in September, the consensus indicates more meaningful mortgage rate changes may not happen until late 2024 or early 2025. As such, if you find a home that meets your needs, it may not be a good idea to wait for mortgage rates to fall.